The Means for. Minority Shareholders'. Protection. Regulatory Framework. Self-
Regulation ... via continuous education of minority shareholders about their rights
...
EQUITABLE TREATMENT OF MINORITY SHAREHOLDERS By Abdul Wahab Jaafar Sidek CEO Minority Shareholder Watchdog Group
Asia Network on Corporate Governance of State-Owned Enterprises by ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT 25-26 June 2008 The Oberoi Hotel New Delhi, India 1
EQUITABLE TREATMENT OF MINORITY SHAREHOLDERS The corporate governance framework should ensure the equitable treatment of all shareholders, including minority shareholders. All shareholders should have the opportunity to obtain effective redress for violation of their rights.
2
MAIN CHALLENGES IN ENSURING EQUITABLE TREATMENT OF MINORITY SHAREHOLDERS IN SOEs
Ensuring that the Board adopts a shareholders’ perspective when making decisions and ensuring minority shareholders’ interests are protected
Improvements to the governance of SOEs
Concerns of stakeholders at large vs shareholders of the Company
Improving communications and interactions between minority shareholders, Board members and management
Ensuring the minority shareholders are duly accorded with their three basic rights: The right to seek information
The right to voice opinion
The right to seek redress 3
Key Mechanisms for Minority Shareholders’ Protection Under The Capital Market Framework The Means for Minority Shareholders’ Protection
Regulatory Framework
Self-Regulation and Disclosure-Based Regulation
Regulatory Discipline
Self-Discipline
Corporate Governance
Shareholder Activism
Part of Market Discipline 4
Regulatory Discipline
Disclosure requirements under Bursa Malaysia Listing Requirements
Shareholders’ approval required for Related Party Transactions (RPTs) and major acquisitions/ disposals
Take-over and merger transactions regulated under Malaysian Code on Take-overs and Mergers
Important recent changes to regulatory framework:
Capital Markets & Services Act 2007 (CMSA)
Revision of the Malaysian Code on Corporate Governance (MCCG) to strengthen the role of Independent Non-Executive Directors in general and of Audit Committee in particular
Proposed establishment of a Public Accounting Oversight Board to help monitor auditors of Public Listed Companies and improve investor confidence 5
Self Discipline
Integrity and ethical values of board and top management Requires commitment for transparent, credible and timely reporting from the Board of Directors and management The greater the self discipline, the less the need for regulatory discipline It will lead to a more competitive capital market
efficient
and
6
Market Discipline
Pre-requisites for an effective market discipline: Disclosure Transparency Governance
The disclosure based regulation (DBR) in Malaysia promotes all these three key pillars
Shareholder activism is an important aspect of market discipline
Minority Shareholder Watchdog Group (MSWG) established on 30 August 2000. Its basic role is to enhance shareholder activism and the protection of the minority interests as an integral part to the development of the capital market
Shareholder activism is achieved via continuous education of minority shareholders about their rights 7
Shareholders’ Rights
Essentially shareholders have three (3) basic rights :
The right to seek information
The right to voice opinion
The right to seek redress 8
The right to seek information
Right to know about the price sensitive information of the company, fair to all shareholders irrespective of each individual’s shareholdings. Right to inspect the Register of Members, Directors, Charges, Debenture Holders, etc and get copy thereof Right to receive Notice of General Meetings (the AGM or the EGM) Rights to receive annual report and audited accounts Right to receive quarterly, half yearly and annual accounts Right to inspect the Minutes of General Meetings (the AGM or the EGM) Right to be kept fully informed of what is happening in the company. 9
The right to voice opinion
Right to attend general meetings (the AGM or the EGM) Right to requisition for a general meeting Right to get the court to direct the company to call a general meeting Right to appoint proxies to attend and vote at a general meeting Right to be heard and make proposals at shareholders’ meeting Right to vote and elect directors and fix their remuneration Right to nominate director Right to appoint auditors and fix their remuneration Right to receive dividends, if declared 10
The right to seek redress
Section 181 of Companies Act, 1965
Common law derivative action
Representative action (under Rules of High Court)
11
Circumstances under which s181 of the Companies Act 1965 provides protection:
The company’s affairs are being conducted in a manner deemed to be oppressive to members of minority shareholders; The directors have exercised their powers in a manner deemed to be oppressive to members of minority shareholders; The company’s affairs are being conducted in total disregard to the interests of members of minority shareholders; The directors have exercised their powers in total disregard to the interests of members of minority shareholders; Certain act of the company has been done or has threatened the interests of members of minority shareholders or unfairly discriminated against the members of minority shareholders or prejudicial to the interests of members of minority shareholders; and Certain resolution of the members (or any class of them) has been done or has threatened or prejudicial or unfairly discriminated against the interests of members of minority shareholders Circumstances cover a multitude of possible situations of abuses for which the common law has evolved specific remedies. In place of common law rules, s181 enacts all embracing situations for redress of grievances brought forth for court action by members of minority shareholders. 12
Additional Measures For Minority Shareholders’ Protection
Mandatory shareholder approval of major transactions – to protect against insider abuses of major transactions Mandatory independent board committees - to protect against insider abuses with board committees composed of an independent chairman and independent directors
Mandatory reporting of transactions by substantial shareholders – to
Mandatory shareholder approval of interested transactions – to
Pre-emptive rights on issuance of new shares – to protect against
Prohibition of loans to directors- to protect against insider abuses, making use of the company’s funds for personal benefits
Penalties for insider trading – to protect against insider abuses of information at the expense of current and potential shareholders
Provisions on take-overs – to protect against violation of minority shareholders’ rights
protect against insider abuses with disclosure of transactions by substantial shareholders protect against squandering of company’s assets by insiders
dilution of minority shareholders and to prevent insiders altering ownership structure
13
How To Encourage Minority Shareholders Representation in Boards
Independent Non-Executive Directors (INEDs) to play important role in protecting minority shareholders’ rights Shareholders can nominate candidate for directorship INEDs need to be easily accessible for minority shareholders to convey their concerns 14
Role of the Ownership entity in ensuring the equitable treatment of minority shareholders
Malaysian Government taking proactive steps to catalyse transformation of Government-Linked Companies (GLCs) into high performing entities GLCs : Companies that have a primary commercial objective and in which the Malaysian Government has a direct controlling stake
GLC Transformation Programme was launched in May 2004 and now entering into the third phase of implementation
Reform initiatives are undertaken and tasked by Khazanah, an investment holding arm of Malaysian Government
Some other prominent ownership entity includes Employees Provident Fund (EPF), National Equity Corporation, Armed Forces Provident Fund, Pilgrimage Provident Fund and Social Security Organisation.
15
Role of the Ownership entity in ensuring the equitable treatment of minority shareholders
By exerting their influence on setting up guidelines and policy towards equitable treatment of minority shareholders. E.g. procedures for the general meeting and board nomination Oversight the corporate governance conducts of the Board and institute accountable attitudes towards their performance and the performance of the Companies. E.g. Performance is assessed objectively and appraised in accordance to benchmark 16
Ongoing Reform Efforts • Proposed revision to the Malaysian Code on Takeovers & Mergers • Related party transactions – enhanced disclosures & approval requirements • Corporate Law Reform – Corporate Law Reform Committee tasked with the role to modernise the current regulatory framework
17
Common law and statutory remedies are continuously enhanced Existing common law & statutory protection • Directors fiduciary duties
• Related party & substantial property transactions – enhanced disclosure & approval requirements • Proposed revision of Malaysian Code on Takeovers & Mergers
• One share one vote rule
• Proposed codification of directors fiduciary duties
• Shareholder rights at AGM
Publication of “A Guide of Best Practices for Institute Shareholder” by MSWG
• Related and substantial party transactions
Corporate Law Reform
• Oppression remedy
• Remedy for oppression
• Common Law Derivative Action
• Statutory Derivative Action • Variation of Class Rights • Class Action • Statutory Injunction
• Minority Buy-Out Rights & Exit-Out Clause 18
Conclusion
Ongoing reforms will enhance minority protection to ensure that they are treated fairly
Minority shareholders must be educated and well-informed on their rights for them to be heard and exert influence Shareholder activism is a powerful tool to ensuring a vibrant and efficient capital market as well as appropriate corporate conduct 19
Thank you Minority Shareholder Watchdog Group Tingkat 11, Bangunan KWSP No. 3, Changkat Raja Chulan Off Jalan Raja Chulan 50200 Kuala Lumpur Tel: 03-2070 9090 Fax: 03-2070 9107 Email:
[email protected] [email protected] 20
